Jun 03, 2015 in this webinar charlie hodgin, technical revrec consultant at, will discuss the foundational concepts of revenue recognition and how they relate to software sales vs. The principal objectives of sop 972 were to reconsider certain provisions of the previous guidance on software revenue recognition that were being applied inconsistently and to address. This guidance is codified in asc 985605, software revenue recognition. What was not clear was how bright lines would blur for companies outside of the traditional software sector as technology evolved over the next decade. For most software accounting departments, it became the bane of their existence. For those in the technology sector that follow statement of position 972, software revenue recognition sop 972 for revenue recognition, adopting topic 606 will most likely result in significant changes in how you recognize revenue. Carmichael, software revenue recognition under sop 972, cpa j. Applicability of aicpa statement of position 972 to certain. When goods or services are exchanged for cash or claims to cash receivables, revenues are. Software revenue recognition rules and postcontract support. The same is true for other substantial mixes that include intangible asset software and. For those in the technology sector that utilize statement of position 972, software revenue recognition sop 972, adopting topic 606 will most likely result in significant changes to when. When statement of position 972, software revenue recognition. If fair value has not been established on each element, then all revenue needs to be deferred until the contract is complete.
Be able to identify areas of the financial statements that contain accounting or reporting uncertainty. For those in the technology sector that utilize statement of position 972, software revenue recognition sop 972, adopting topic 606 will most likely result in significant changes to when you recognize revenue, particularly with regard to contracts with multiple performance obligations. This guidance is codified in asc 985605, software e revenue recognition. Surgents revenue recognition in the technology sector. Examples of the application of certain provisions of this statement of position appendix a of sop 972 104 response to comments received appendix b of sop 972 109 revenue recognition on software arrangements appendix c of sop 972 110 glossary from sop 972 1. The company recognizes revenue in accordance with the american institute of certified public accountants aicpa statement of position sop 972, software revenue recognition, as amended by sop 989, modification of sop 972, software revenue recognition, with respect to certain transactions. New eitf revenue recognition standards for multiple.
Revenue arrangements with multiple deliverables bpm accounting. Surgents challenges in implementing topic 606 for entities. Additional guidance on allocating among elements may be found in sop 811, paragraphs 35 through 42. The fasb and the iasb are working on a converged model for customer contracts that will completely revamp the revenue recognition rules and replace much of the guidance currently in place. All of the methods of allocating revenue in those sops, including the residual method discussed in sop. Gaap and replaces it with a principlesbased approach. For those in the technology sector that follow statement of position 972, software revenue recognition sop 972 for revenue recognition. Mar 16, 2018 for those in the technology sector that utilize statement of position 972, software revenue recognition sop 972, adopting topic 606 will most likely result in significant changes to when you. Sop 972 provides guidance on recognition of revenue derived from. Application of sop 972, software revenue recognition, to transactions involving softwareenabled devices is leading more and more to financial statement presentation that does not always provide a reasonable representation of a companys performance. Interestingly, however, the number of financial restatements in the united states dropped in 2007 for the first time since the passage of the sox, although over 1,200 restatements were still filed. Challenges in implementing topic 606 for entities in the. The guidance in asc 985605 is applicable to transactions involving the licensing.
Software revenue recognition, statement of position 972 am. In sop 97 2 companies are given more guidance in applying the. Revenue recognition rules for bundled sales in high technology. Aicpa statements of position sops, available fulltext at the links below from the university of mississippis library digital collections with the permission of the american institute of certified public accountants aicpa, have been issued by the aicpas accounting standards division since 1974 and are meant to influence the development of accounting standards and to propose revisions to. Discuss how to evaluate the sufficiency of accounting for areas of estimation, such as common allowances and accruals. Revenue recognition for software companies softrax. An everincreasing number of financial restatements were filed during each of the period 20002006, reaching a record 1,876 in 2006. The guidelines, entitled statement of position 972, software revenue recognition, described in this article as the new sop supersedes statement of position 911 sop 911 on the same subject. Citeseerx aicpa statement of position 972, software. When statement of position 972, software revenue recognition, was issued in october 1997, it was clear that all software companies would transition to this new standard.
Revenue recognition for longterm construction and similar contracts. The financial accounting standards boards fasb accounting standard on revenue recognition, fasb asu 201409, eliminates the transaction and industryspecific guidance under current u. Revenue recognition for software companies softrax industry. By clicking on the accept button, you confirm that you have read and understand the fasb website terms and conditions. Fasb also revised the guidance surrounding what constitutes a software arrangement. Financial reporting developments software e revenue recognition iii 1 introduction and scope 1. Revenue recognition on software arrangements appendix c of sop 972. In sop 97 2 companies are given more guidance in applying the two general from it 595 at oxnard college. This is because according to the gaap software revenue recognition rules, revenue can only be recognized upon delivery if fair value has been established for each element within a contract. It applies to both public companies according to sab 104 and private enterprises. Software the primary authority for software revenue recognition is aicpa statement of position sop no.
Financial reporting developments software revenue recognition 1 1 introduction and scope 1. Charlie will begin with a description and examples of the use of the four criteria pillars and how software and hardware currently have. Aicpa statement of position 972, software revenue recognition, was issued in an era when software was not embedded in as many products as is now the case and has rapidly become out of date. For those in the technology sector that follow statement of position 972, software revenue recognition sop 972 for revenue recognition, adopting topic 606 will most likely result in significant changes in how you recognize. Software revenue recognition under sop 972 the cpa journal. New standards update sop 972 software revenue recognition. Software revenue recognition on the rise journal of accountancy. Tim regan, cpa, is dolby laboratories senior revenue manager in san. Mar, 2012 as revenue recognition accounting changes, companies are spending more time and money to keep up. Banking, finance and accounting business law computer software industry accounting and auditing industry sales and revenue marketing software industry. The guidance of sop 972 is effective for software arrangements entered into in fiscal years beginning after december 15, 1997.
The statement was released due to changing business models within the software industry and was known as sop 972 software revenue recognition. Revenue recognition 5 step process silicon valley cpa. Change is definitely coming to the world of revenue recognition. The latest chapter in that history is statement of position sop 972, software revenue recognition, issued by the aicpas accounting standards executive committee acsec in october 1997.
The aicpaa s accounting standards executive committee acsec recently issued statement of position sop 972, a software revenue recognition,a which supersedes the provisions of sop 911, a software revenue recognition. The primary authority for software revenue recognition is aicpa statement of position sop no. Understand the proper accounting treatment of loss contingencies under u. The 4 pillars of revenue recognition sop 972 and sab 104. Created to influence the development of accounting standards and guidance, it was the 103rd statement issued by the aicpa.
The guidance is already in effect for public companies. Jun 01, 2000 in october 1997, the aicpa issued statement of position sop 972, entitled software revenue recognition. New eitf revenue recognition standards for multiple deliverable. New guidelines for software revenue recognition practical. The new sop provides for prospective application of its guidelines for transactions entered into in fiscal years beginning after december 15, 1997. The latest chapter in that history is statement of position sop 972, software revenue recognition, issued by the aicpas accounting standards executive. For those in the technology sector that utilize statement of position 972, software revenue recognition sop 972, adopting topic 606 will most likely result in. Sop 972 makes clear that delivery has not occurred unless the software is shipped to the customers place of business or another site specified by the customer. Statement of position 972 to certain arrangements that include software. Statement of position 972 continues to help financial statement preparers. The tpa uses a questionandanswer format to cover matters such as the commencement of an initial or renewal software license term and an arrangement containing an option to extend a.
1160 723 492 129 1575 331 624 1289 1034 403 571 242 859 209 570 870 1420 1113 1379 181 835 55 591 229 1598 1531 942 939 206 261 570 6 100 1051 730 1095 572 981 644 1183 31 630 1145 327 1029 198 801 817